Investment-Specific Technology Growth: Concepts and Tecent Estimates

The rapid pace of productivity growth since the mid-1990s has been attributed to improvements in technology, particularly in the areas of information processing and communications. From e-mail and cell phones to inventory management and robotic manufacturing techniques, new ways of doing business—facilitated by the use of new types of capital equipment—have transformed the workplace. However, traditional growth theory and growth accounting techniques—which emphasize the role of disembodied, neutral technological progress—are deficient in explaining the phenomenon of productivity growth driven by technology that is embodied in new types of capital equipment. Consequently, models of “investment specific” technological progress have gained prominence as a framework for evaluating the role of capital-embodied growth. This article outlines a general model of investment-specific technological change, presents some new estimates, and examines the role that this type of technological progress has in explaining and predicting recent and prospective productivity growth trends.